Stocks Down as Yellen Paints Herself into a Corner (Audio)

In his latest podcast, Peter Schiff explains why the Dow Jones and S&P 500 are now negative on the year. The markets are eating up Janet Yellen’s talk of raising rates, but she’s painting herself into a corner with her hypocrisy. Peter also argues that the Obama administration’s plan to let student loans be discharged in bankruptcy is yet another bailout that will only inflate the debt bubble.

Highlights from Peter’s podcast:

“That was quick. The NASDAQ 5,000 party ended pretty much the day it began. The NASDAQ today was down better than 80 points. We are now at 4867, and we’re leaving 5,000 rapidly in the rearview mirror. The Dow Jones down 332 points. Remember, last week I mentioned that the Dow and S&P were still up on the year, but ever so slightly. I thought they would surrender their gains this week. It happened on Monday… Both the S&P… and the Dow… have wiped out all their gains and are now negative on the year…

“Janet Yellen is succeeding beyond her wildest dreams. In fact, it’s too much success, because she wants to pretend that she’s going to raise rates, but she doesn’t actually want to raise them, because she doesn’t want what’s happening right now to happen. Because she knows if she raises rates, the markets are going to come way down, we’re going to be in a bear market, and the economic data is going to continue to get worse until we are in a recession. What Janet Yellen wants is to have her rate-hiking cake and eat it too by talking about rate hikes but not actually raising them because she doesn’t want to live with the consequences. Well now we’re having to live with the consequences of talking about a rate hike because Janet Yellen has let the markets assume that they’re about to raise rates and she has not done anything to distract them. I think she has but she’s going to have to actually come out and tell people, ‘hey, the economy’s weak, we’re not raising rates.’ Maybe she’s going to have to wave that white flag of surrender if she wants to stop the carnage in the markets…

“Janet Yellen really needs to do something at the Fed to get the markets to think that rate hikes aren’t coming, but I don’t know how she can do that without showing her hand, without appearing wishy-washy and inconsistent. She may have backed herself into a corner and she doesn’t really know how to get out of it. The markets are going to continue to be under pressure. The stock market could drop precipitously from here if this idea of a Fed rate hike is not taken off the table by the Fed. Remember, the last time we had a significant correction in the stock market, the only thing that stopped it from turning into a bear market was statements from a Fed governor that QE4 was being considered. They obviously can’t say that now without letting the cat out of the bag. The government, the Fed, has nothing to stop the market from imploding…

“The Obama administration now floating a trial balloon on allowing for student loan debt to be more easily discharged in bankruptcy… Now they haven’t released the details of exactly who would quality, what the criteria would be, but this is a disaster in the making… It cannot work. There is a reason you cannot discharge your student loans in bankruptcy… If you could discharge your student loans due to your financial positions, every graduate would do it… If the colleges knew that all of their students were just going to declare bankruptcy and discharge their student loans, well then, colleges would raise their tuition even faster… There is such a big carrot there when you’re waving a carrot over discharge. Of course, the more students borrow, the bigger that carrot is… The fact that they’re thinking about stuff like this— we’ve got 1.3 trillion dollars in student loans and rising rapidly, the taxpayers are on the hook, and if the loans are discharged in bankruptcy, the lenders theoretically still get paid back because the government has guaranteed all those loans which means it’s a huge bailout for students who have these degrees..

“Look beneath the surface to see how weak the economy is… It is almost comical to watch this as you have these traders blindly bidding up the dollar thinking that the Fed’s going to raise rates and oblivious to everything else that’s going on. I wonder how far the stock market has to fall before it dawns on some of these dollar bulls that the Fed isn’t going to raise rates… How long can the currency markets be oblivious to the stock market, as if the Fed is going to sit idly by and watch the market implode? After all they spent so much time and effort inflating this bubble they’re not going to sit idly by while it deflates even though they think they haven’t even pulled the pin out of their pocket yet…”